I can pick any two points on just about any chart, and if my timing is correct, and the direction of my trade, I could of made money. But this same instrument over the same period of time can be a loser for most traders who have attempted to trade it. It all depends on your skill level, and what time frame you are operating in which may or may not have you compete with much more experienced players that may have a number of advantages over you. The smaller time frames you trade in, not only are you competing against more professionals including the market makers, but also more personal issues will be found to get in the way of successful trades. This has to do with the individual's psychology and how it manifests itself when trading in the shorter time frames. Also you need to consider how well the larger time frames are being represented in the time frame you are trading in. In other words, if there is a large influx of large positional orders over the day session, then intraday trading in the smaller time frames becomes much easier for everyone concerned. But to say that *anything* that returns on the average 11.8% per year is proof that it is not a "zero sum" game is a very broad and IMO by itself a misleading and inaccurate statement. How long has this return been in place for *you*? Is *everyone* making this return in the market over many years, like at least two market cycles? Or has this been true for at least the majority who have been participating in this market in that time frame? Would this be true for a 20% return? 50%? Or 100% return? What market are we talking about trading here? What method is being used for this profitability? Basically, my question comes down to this: what relevance does this very ambiguous statement have in respect to there being or not being a "zero sum" game? Or are you saying this is true for all traders in all markets, and in all time frames for this level of profitability? I do not think so. :-)
Furthermore, the market is not a homogeneous entity. There are different groups of players that may not compete with each other in their trading of the market, even in the same instrument that they trade in. This means that because some group is making money in a given situation with a given instrument, this does not even mean the majority of groups are making money in the majority of situations in the market trading this same instrument. And this losing period for the majority of traders can actually dominate their trading for a period of time. Not only are there time frame differences to attribute to this losing period, but simply the setups that many look to trade may not be showing up in the market for a period of time. Or what turns out to be frequently worse, these setups do not resolve well in during periods of time in the market. Like the trading of an anticipated bounce off of a key EMA in a congested market. Or anyone trading any setup in a choppy market who is not scalping from the floor of the exchange. So net price increases and overall profitability for a group of traders has nothing to do with there being or not being a "zero sum" game. For that matter, I suspect there can be nothing but day traders in the stock who close out their positions by the end of the day and price still can close up or down by the end of the day when one takes into account factors like *sentiment* changes that have occurred during that day.
We have to compare apples to apples here. But much of what I have seen posted recently on this topic of a "zero sum" game either is ambiguous and misleading, or does not have a common basis for comparison like comparing apples to oranges. Perhaps a more productive and accurate way in stating this thesis is that the smaller time frame you trade in, the more likely those traders will be competing against each other as day traders over the same dollar bill, and the fewer percentage of winners you will find trading in that time frame for this and other reasons. Furthermore, some markets will indeed provide traders in the smaller time frames with good profitability. At other times, it will then take away a good part if not all of those profits. I have seen this happen to many traders in the very same day. So over time, trading in these smaller time frames comes to behave like a "zero sum" game from the perspective of the individual trader. For we are talking about the individuals net profitability which is all that matters. In this regard, as I have stated earlier, you have to consider who you are competing against in the time frame you are trading in besides the setup you are trading in a given market that can change over time. This will help to determine your profitability. IMO for most traders, this actually turns out to be a net losing game. Or a "zero sum" game with most of the profits going to a small group of traders making the profits.
Lets explore a bit further the differences that time frames introduce with respect to the trader. Just because there are other trades occurring in lets say much smaller time frames is IMO meaningless much of the time. There are allot of scalpers who on the floor scalp for a fraction of a point. Am I competing against them for my profits when I am trading for moves of several points or more? Of course not. Or if the market congests in a specific time frame rendering setups there not worthwhile to take, which does happen, then the trader either continues to trade which loses them money, or decides not trade. Even if the trader decides to respond by changing the time frame they trade in, this frequently alters the behavior of price for their trades includng changing their risk to profit profile for the trades that they take. For they are now effectively trading with a different group of traders. This may this may be unworkable to the trader. But this picture can change when there is a significant change in larger trades that come into the market over a period of time, like institutional money. This can provide a change in the price action that I and many other day traders can profit from in the smaller time frames. So in this case it is not even close to a "zero sum" game when comparatively longer term money of significance is involved. I have seen this even with a stock that was strongly trending during the day session where there appeared to be a majority of day traders who were trading the issue. The strongly trending stock price closed up, but not without a good pullback at the end of the day. So who were the traders buying from and selling to at the end of the day? The market maker of course. When you have a stock that most traders expect to go up, who else is going to take the other side of the trade? The market maker of course. So guess who normally loses money in a situation like this?
Look at the SPOO for instance. From my time knowing those who trade this instrument and my time in chat rooms, most who day trade the SPOO simply do not make money. Now if the market is putting in strong moves like good strong intraday trend, most day traders are probably making money. But the market spends most of its time in congestion trading in one form or another. And then after a period of time, it can change its behavior in how it trades in congestion, so the traders who were making money before may not be making money now. Then there is the floor who attempts to engineer fake-outs and "surprise" price reversals. A trader needs to be very flexible to trade the SPOO. And find that setups will change with how they need to be traded in order to stay one step ahead of the crowd. For example, I find learning how to enter a setup early helps here. Successfully trading the SPOO comes with much experience where very few survive the learning curve. And I have found *very* few day traders of the SPOO who are still around making regular profits. Matter of fact, I can count them on one hand. So here I would consider the day trading of the SPOO over a period of time approaches a "zero sum" game for most of those who are involved. Actually for most I would call it a "negative sum" game. :-) Normally only a comparatively small amount of day traders are making money at any given time with the SPOO. And this is even more true with scalpers. For I find that most scalpers do not have the required focus and discipline, which relates to their emotional makeup, to scalp the SPOO. There is one well-enough known trader of the SPOO called Gary Smith. He has been looking for several years for *one* trader that has reliably scalped the SPOO for profits. He has even made offers to motivate them to come forward. So far, he has not found *one* trader to step up that could prove with several years of brokerage statements their consistent profitability as a scalper of the SPOO. Considering this would be a golden opportunity for a trader to be validated who wishes to profit by selling services, including that of trading other peoples money, this does surprise me. Gary was calling intraday trades a form of scalping. Someone indeed is making money. There has been a few documented examples of this. But given what I at least have seen in traders who operate in the smaller time frames, particularly the 1-nmin time frame, I have to agree that very few are making money scalping the SPOO.
Just some thoughts. :-)
Bob Graham
PS: One statement I have found in a previous post that proposed that the number of buyers need to equal the number of sellers for there to be a "zero sum" game is very erroneous. For each transaction, there is *always* one buyer and one seller. This is another example of the errors one can commit by attempting to over-generalize. And if this person was talking about some measure of buying *interest*, then he is implicitly wrong. Buying interest has nothing to do with the number of buys equaling or not equaling the number of sells, whatever that would mean in this situation. Even considering the balance of trades at a given price level, this can be also in error. The number of buyers may or may not happen to come close to the number of sellers at a specific price. But the trading activity can still show a net buying or selling interest that causes an associated net change in price. For one thing, it depends on the sentiment driving each group in how aggressively they step up to the bid or offer. |
